California homeowners insurance writers will soon have to defend their rates before a state insurance commissioner who believes it is time for them to come down.
State Farm, Farmers, Allstate and Safeco are the four carriers under pressure from Insurance Commissioner John Garamendi to lower home insurance policy rates.
The commissioner said in a statement that a recent Department of Insurance study showed homeowners writers paid far less than 50 cents on the dollar to cover policyholder claims, with Safeco coming in the lowest at 26.3 percent.
State Farm spokesman Bill Sirola said the commissioner's assertions are "interesting, considering this is the start of fire season."
Mr. Sirola said that State Farm will defend its rates at any hearing the commissioner holds.
The current level, he said, "are the rates the commissioner himself approved last year."
Nonetheless, Mr. Sirola said State Farm is in a constant process of reviewing rate adequacy and could adjust them if conditions warrant.
Mr. Garamendi said the four carriers will have to prove their current rates are not excessive or face mandatory reductions.
Meanwhile, he praised The Hartford after that carrier submitted a request for an 18 percent decrease in homeowners rates, that he approved last week.
Concerning the other insurers, he said, "I will determine why up to 70 percent of the hard-earned dollars that consumers pay end up in corporate bank accounts instead of being used to pay policyholder claims."
American Insurance Association spokeswoman Nicole Mahrt said the department's study only went back two years, ignoring losses from the fires three years ago.
"With insurance, you just can't take a quick snapshot," she said. "You have to look at the bigger picture."
Rex Frasier, president of the Personal Insurance Federation of California, said that he did not recall the commissioner pressing the insurance companies to raise their rates in 2003 when carriers suffered severe fire-related losses and State Farm posted a loss ratio of 104.
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